Thursday, May 2, 2013

Self Conscious Leaders, Apolitical Bankers, Misjudgments and Destiny

The Louisiana Purchase of 1803 was a major development in the creation of the United States as it provided security, financial and farming resources that would fuel the nation's vision of expansion and self-fulfillment. It became available through a series of significant misjudgments by Napoleon.

Napoleon was at war with Britain and needed cash. He looked at the French New World holdings and evaluated what was of least value. The Louisiana area he knew of was marsh and he saw little future in it. His other holding was the French colony of Saint-Domingue, which occupied the western half of the island of Hispaniola (the eastern half being the Spanish colony of Santo Domingo). It had a population of 500,000 and plantations of sugar cane, indigo, coffee, and cocoa rich enough to fill 700 ships a year; it was the richest French possession in the world. The decision was easy: Sell Louisiana.

As attractive as it appeared to the Americans, its purchase was anything but a certainty as the Americans still had $82 million in war debts from the revolution. More, such a purchase would be brokered by men uncertain of the government's ability and right to take such a step. This is a virtual microcosm of the thinking of the original American government creators. Indeed, Jefferson, always an opponent of government power, thought a constitutional amendment would be required--as did Madison and most of the other cabinet members. The argument that carried the day was from Secretary of the Treasury Albert Gallatin who held the Hamilton-like position that the nation must have some implied powers to maintain its integrity and acquire territory. The movement to begin the lengthy process of amending the Constitution was dropped, and Congress quickly approved the purchase.

But what about the money? Napoleon wanted $15 million and Gallatin had about 25% available. Gallatin floated a bond issue--using the promise of $200,000 federal annual revenue from the Port of New Orleans--through the Dutch banking house of Hope and Company, which promptly sold it to Baring Brothers, a British investment bank. Alexander Baring worked closely with Gallatin for five months in Washington to complete the details.

So a British banker, Alexander Baring, raised the funds for America to pay for the land -- thus strengthening both Britain's archenemy Napoleon and Britain's emerging competitor and ex-colony, America.

And the coveted Saint-Domingue? The next year, 1804, France lost the colony when a successful revolution by black slaves led to their independence. It became the new garden spot nation of Haiti.